31 January 2022

The UK’s Competition and Markets Authority’s Music Streaming Market Study

1. What has the Competition and Markets Authority (CMA) announced?

On January 27, The UK’s competition regulator, the CMA, has formally launched a market study into music streaming; see its Market Study Notice.

The market study will look at whether competition in the music streaming value chain is working well for consumers. It will focus on three key areas: competition among music companies; competition among music streaming services; and the impact on competition of agreements between music companies and music streaming services.

The CMA is seeking the views of industry stakeholders on the proposed scope of its market study, as described in its Statement of Scope. It has also requested input on 24 questions that relate to music streaming generally and the three key areas of focus described above. The CMA has set a deadline of February 17 for responses, which will inform the direction and conclusions of its market study.

2. What is a market study?

Market studies are examinations into the causes of why particular markets may not be working well, taking into account regulatory, economic, and other factors. A study’s aim is to identify market deficiencies and to propose solutions to improve the operation of the market.

The CMA has statutory investigative powers including powers to compel any person to attend a specified place to give evidence to the CMA; to produce specified documents or categories of documents that are in that person’s custody or control; and to supply specified forecasts, estimates, returns, or other information in a specified form and manner.

3. What happens next?

As noted, the CMA is seeking the views of industry stakeholders on the proposed scope of its market study. The Statement of Scope also sets out 24 questions on which it is seeking industry input, which represent the start of its evidence-gathering exercise (see pp. 36 – 38 of the Statement of Scope).

More broadly, the CMA has six months to publish an interim report, and 12 months to publish its final report, setting out its findings, recommendations, and any actions it proposes to take, including whether it will launch an in-depth study into particular areas of concern. The indicative timetable, including the key dates set out in the Administrative Timetable, is summarized below.

Indicative Timetable – Music Streaming Market Study

Date Action
Jan 27, 2022

 

Market study formally launched, with publication of a market study notice and statement of scope, including a request for industry input.
Feb 17, 2022 Deadline for responses to the CMA’s statement of scope/request for industry input.
Feb – Jul, 2022 The CMA will issue information requests to market participants.

Meetings with the CMA are also possible.

Jul 26, 2022 Deadline for the CMA to publish its interim report, including a preliminary decision on whether to make a market investigation reference. It will consult with industry on its interim report.
Aug – Sep, 2022 Deadline for responses to the CMA’s interim report.
Jan 26, 2023 Deadline for the CMA to publish its final report, including its decision on whether to make a market investigation reference.

 

4. What will the scope of the market study be?

The CMA’s market study will focus on the music streaming value chain and whether those markets are working well and in the interests of consumers.

As a preliminary step, the CMA will seek to understand how the industry works, including a careful analysis of business models of music companies and streaming services; vertical integration of companies across the value chain and cross-shareholdings; consumer choice and use of streaming services; how music companies/streaming services compete; and the impact of music streaming on the industry and future developments.

The CMA will then assess whether competition is working well, with reference to three key areas:

(i) Competition among music companies

The CMA will assess the degree of competition among music companies, with an assessment of the bargaining power of music companies vis-à-vis (i) music creators when offering services to develop and bring their music to market and (ii) music streaming services.

The CMA will consider various parameters, including whether the combination of recorded music and music publishing businesses increases market power; barriers to music creators’ switching to different music companies or deals; economies of scale and network effects from large music portfolios; the need for streaming services to offer all/most music content; and barriers to entry/expansion.

(ii) Competition among music streaming services

The CMA will assess the strength of competition in music streaming services, including the extent to which certain music streaming services have market power. The CMA is particularly interested in whether competition in music streaming services is as effective as it could be at achieving good outcomes for consumers. It will look at the incentives for streaming services to offer different service plans, such as ad-funded and premium services. It will seek to understand the drivers of and constraints on the prices, terms, features, and content of these different options.

(iii) Competition issues that may arise from agreements and interrelationships between music companies and music streaming services

The CMA will examine the relationships and agreements between the music streaming services and the music companies involved in licensing and distributing music and whether these relationships and agreements could raise competition concerns. In particular, it will consider the effect of such agreements on competition among music companies in the supply of music to streaming services and the supply of services to music creators. It will also consider the effect of cross-shareholdings and other softer forms of control of influence between music companies and streaming services.

5. What are the possible outcomes?

Market studies are by their nature general in scope. Accordingly, the CMA does not have powers, on conclusion of a market study, to impose remedies to address perceived deficiencies in the way a market operates. However, it can recommend legislative or regulatory reform or encourage actions by industry stakeholders.

Where the CMA identifies specific competition issues that need to be addressed (e.g., by means of remedies), it can do so by launching a market investigation, at the conclusion of which the CMA can exercise its order-making powers, for example, compelling actions by industry participants.

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